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Bloomberg's Shah on Home Improvement, Housing Trends (Audio) · Bloomberg Intelligence

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  Speaker 1: This is taking stock with Bin Box and Kathleen Hayes
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  Speaker 1: on Bloomberg Radio. All right, let's take stock of home
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  Speaker 1: furnishings and the industry behind a company such as Home
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  Speaker 1: Depot Lows, Tractor Supply, Lumber Liquidator is also going to
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  Speaker 1: talk a little bit about the mattress industry. Seema Shaw
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  Speaker 1: has our consumer discretionary analysts for Bloomberg Intelligence, providing unique
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  Speaker 1: and real time research as well as context for a
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  Speaker 1: variety of industries as well as markets and government factors
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  Speaker 1: that have an effect on business. Our terminal customers can
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  Speaker 1: access this function at b I go on the Bloomberg
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  Speaker 1: Sema Shaw, thank you very much for being here. All right,
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  Speaker 1: so where do where do you want to begin? I mean,
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  Speaker 1: because I know that there were some retailers such as
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  Speaker 1: Home Depot, Lows and so on, uh, that you want
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  Speaker 1: to talk about and some trends it has to do
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  Speaker 1: with them, well, just some tail winds you say, from
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  Speaker 1: housing right So um, our thought right now is that
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  Speaker 1: there's near term pressure on the home improvement segment from
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  Speaker 1: the macro perspective that as you can see that in
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  Speaker 1: the August US retail sales were building materials were down
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  Speaker 1: one point for from the month prior, and I think
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  Speaker 1: a lot of that has to do with just the
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  Speaker 1: consumer is a little bit more cautious heading into the
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  Speaker 1: election cycle and not really quite sure what's going to happen,
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  Speaker 1: and I think that some of the other macro figures
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  Speaker 1: are not telling the true story of how the consumer
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  Speaker 1: really feels. But there are long term tail winds for
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  Speaker 1: the home improving sector. The most obvious is the rising
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  Speaker 1: home values and so people feel more comfortable investing in
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  Speaker 1: their homes. And then we also have the fact that
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  Speaker 1: most homes over six homes in the US are over
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  Speaker 1: thirty years old, and more of the population of the
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  Speaker 1: US is aging, and they tend to want to age
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  Speaker 1: in place, so that often requires some sort of home renovation.
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  Speaker 1: The biggest hold up right now is also that home
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  Speaker 1: prices have appreciated so much that they are less affordable.
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  Speaker 1: And that also that might help the home retailers because
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  Speaker 1: or the home improvement guys, because you just might fix
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  Speaker 1: up where you are because it's hard to move into
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  Speaker 1: a new place. I just want to ask you to
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  Speaker 1: to go a little bit deeper force because you said
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  Speaker 1: something interesting, which is that a lot of the macro
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  Speaker 1: indicators do not capture perhaps the real state of the consumer.
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  Speaker 1: And I mentioned that only in the context of today's
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  Speaker 1: UH consumer spending that spending was up to tens of
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  Speaker 1: a percent, earnings were I beg your pardon, earnings were
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  Speaker 1: up two tens of a percent, spending was flat. And
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  Speaker 1: then also we got the University of Michigan report which said,
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  Speaker 1: you know, things were doing pretty well. Right. Um, the
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  Speaker 1: surveys have gone all over the place in terms of
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  Speaker 1: how the confident the consumer is, but the macro data points,
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  Speaker 1: I'm thinking about our participation rates in the job market,
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  Speaker 1: how many people have actually left and are not looking
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  Speaker 1: for a job, And then also what types of jobs
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  Speaker 1: are you seeing, what type of creative job creation is there,
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  Speaker 1: and if it is more part time, those jobs tend
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  Speaker 1: to be less secure and pro worker productivity has not increased,
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  Speaker 1: So even if more people are working, they're not being
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  Speaker 1: more productive. And I think there still is a I
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  Speaker 1: guess the headwind from what happened though eight where people
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  Speaker 1: are a little bit nervous and I don't know very
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  Speaker 1: many people that feel like they could walk out of
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  Speaker 1: their job and get another one right away. So if
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  Speaker 1: you have one, maybe you're focused on saving or paying
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  Speaker 1: down the debt that you have and maybe just not
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  Speaker 1: buying stuff. And I think part of it is also
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  Speaker 1: a demographic change. The millennials tend to be broadly speaking,
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  Speaker 1: less focused on stuff and brands and more focused on
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  Speaker 1: um experiences, and they're into a shared economy. So that's
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  Speaker 1: sort of a different way of looking at what is
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  Speaker 1: the future of retail and how will the millennials shape
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  Speaker 1: that going forward. Well, you also have at least some
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  Speaker 1: some information from a Deloitte study. Correct. This Deloitte study
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  Speaker 1: is about the holiday forecast, and the forecast is for
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  Speaker 1: growth of between let's say three and a half to
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  Speaker 1: four percent, And I guess your point is that maybe
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  Speaker 1: a little bit too optimistic based on what we've seen
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  Speaker 1: so far, and even the g d P numbers that
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  Speaker 1: came out for two Q, they would have to see
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  Speaker 1: a huge acceleration in the back half in my mind
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  Speaker 1: to see that, and just generally it's not proven. But
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  Speaker 1: the way that Q three and back to school sales
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  Speaker 1: tend to go is how holiday often is. And from
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  Speaker 1: the retailers we've seen that I have a little bit
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  Speaker 1: of a delay in their reporting, doesn't sound like things
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  Speaker 1: were all that robust in August and September. Well, have
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  Speaker 1: you even said that. Let's say that you had a
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  Speaker 1: view of the market and you said that it was
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  Speaker 1: doing pretty well. And the stocks. I mean, if I
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  Speaker 1: take a look at Home Deepot, the shares down about
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  Speaker 1: two and a half percent so far this year, uh
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  Speaker 1: lows a stock down five this year. If you take
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  Speaker 1: a look at it from a perspective of buying them,
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  Speaker 1: you're buying that you would be buying these things at
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  Speaker 1: you know, a twenty multiple. Is that considered to be expensive?
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  Speaker 1: I mean I made relative to I think that the
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  Speaker 1: home improvement retailers probably trade out a premium compared to
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  Speaker 1: the SMP. But if you looked at the home furnishings subgroup,
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  Speaker 1: you'd probably see that they've come in a lot. That
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  Speaker 1: segment has been hit a lot harder one from the
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  Speaker 1: softening consumer, in my view, and also from just the
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  Speaker 1: rise of competition across the board, from the targets j C.
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  Speaker 1: Penny's and Macy's of the world, and also from someone
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  Speaker 1: like Amazon and Wayfair, which recently went public two years
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  Speaker 1: ago and over seven thousand items on their website. Because
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  Speaker 1: home furnishings tends to be less brand specific. I don't
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  Speaker 1: know how many people can name the brand of their
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  Speaker 1: coffee table. You just go and look. It's very visually driven,
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  Speaker 1: and I think they're seeing a lot of share games
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  Speaker 1: as this category moves online, so just quickly seem as so.
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  Speaker 1: The companies that might be effected in this case are
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  Speaker 1: things like what peer one imports restoration hardware Williams Sonoma right, Yes,
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  Speaker 1: those would be the ones, particularly someone like a bed
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  Speaker 1: bathroom beyond that tends to have less differentiated or unique product.
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  Speaker 1: Peer one has their own style of product, but they're
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  Speaker 1: still affected by us. Thank you very much for spending
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  Speaker 1: time with me. Se Michelle is our consumer discretionary analyst
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  Speaker 1: for Bloomberg Intelligence, and of course you can access all
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  Speaker 1: I'm pim Fox. This is Bloomberg